SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549


                                   FORM 10-QSB


[X] QUARTERLY  REPORT  PURSUANT  TO  SECTION  13 OR 15 (d)  OF  THE  SECURITIES
    EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED September 30, 1999

                                       OR

[ ] TRANSITION  REPORT  PURSUANT  TO  SECTION  13 OR 15 (d)  OF THE  SECURITIES
    EXCHANGE  ACT OF 1934 FOR THE  TRANSITION  PERIOD FROM  _______________  TO
    _________________.

                         Commission File Number 0-25933


                        SOUTHCOAST FINANCIAL CORPORATION
        (Exact Name of Small Business Issuer as Specified in the Charter)


                   Incorporated in the State of South Carolina
                I.R.S. Employer Identification Number 58-2384011


               530 Johnnie Dodds Boulevard, Mt. Pleasant, SC 29464
                    (Address of Principal Executive Offices)


                                 (843) 884-0504
              (registrant's Telephone Number, including Area Code)


         Indicate  by check mark  whether  the issuer (1) has filed all  reports
required to be filed by Section 13 or 15(d) of the  Securities  Exchange  Act of
1934  during the  preceding  12 months  (or for such  shorter  periods  that the
registrant was required to file such reports),  and (2) has been subject to such
filing requirements for the past 90 days. [ X ] Yes [ ] No

         Indicate  the  number of  shares  outstanding  of each of the  issuer's
classes of common stock, as of the latest practicable date.



Common Stock - No Par Value
1,047,987 Shares Outstanding on September 30, 1999





<PAGE>


                                     PART I
                              FINANCIAL INFORMATION

ITEM 1.  Financial Statements

                                         SOUTHCOAST FINANCIAL CORPORATION
                                            CONSOLIDATED BALANCE SHEETS


<TABLE>
<CAPTION>
                                                                                                 (Unaudited)
                                                                                                September 30,        December 31,
                                                                                                     1999                 1998
                                                                                                     ----                 ----
ASSETS
<S>                                                                                             <C>                    <C>
   Cash and due from banks ...........................................................          $  1,560,363           $  1,211,451
   Federal funds sold ................................................................             1,410,000              4,220,000
   Investment securities available for sale ..........................................             4,683,264              2,732,978
   Loans, net of allowance of $805,000 and $325,000 ..................................            35,768,157             10,821,975
   Property and equipment - net ......................................................             3,799,774              1,243,133
   Other assets ......................................................................               885,297                453,207
                                                                                                ------------           ------------
       Total assets ..................................................................          $ 48,106,855           $ 20,682,744
                                                                                                ============           ============

LIABILITIES
   Deposits
     Noninterest-bearing .............................................................          $  3,695,082           $  2,114,621
     Interest bearing ................................................................            29,538,018              7,444,869
                                                                                                ------------           ------------
       Total deposits ................................................................            33,233,100              9,559,490
   Federal Home Loan Bank borrowings .................................................             4,900,000                950,000
Other liabilities ....................................................................               271,180                 98,670
                                                                                                ------------           ------------

       Total liabilities .............................................................            38,404,280             10,608,160
                                                                                                ------------           ------------
SHAREHOLDERS' EQUITY
   Common stock (no par value; 20,000,000 shares authorized;
     1,047,987 shares outstanding at September 30, 1999. $5.00 par
     value; 20,000,000 shares authorized; 952,713 shares
     outstanding at December 31, 1998) ...............................................            10,520,053              4,763,565
   Paid-in capital ...................................................................                     -              5,756,488
   Retained deficit ..................................................................              (734,022)              (451,147)
   Accumulated other comprehensive income (loss) .....................................               (83,456)                 5,678
                                                                                                ------------           ------------
       Total shareholders' equity ....................................................             9,702,575             10,074,584
                                                                                                ------------           ------------
       Total liabilities and shareholders' equity ....................................          $ 48,106,855           $ 20,682,744
                                                                                                ============           ============
</TABLE>









         See notes to consolidated financial statements.




                                       2
<PAGE>


                        SOUTHCOAST FINANCIAL CORPORATION
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                  Three months      Three months        Nine months
                                                                                     ended             ended               ended
                                                                                 June 30, 1999      Sept. 30, 1999    Sept. 30, 1999
                                                                                 -------------      --------------   --------------

INTEREST INCOME
<S>                                                                               <C>                 <C>               <C>
   Loans, including fees .................................................        $   608,935         $  816,752        $ 1,791,833
   Investment securities .................................................             65,335             80,146            192,624
   Federal funds sold ....................................................             35,715             22,855            107,318
                                                                                  -----------         ----------        -----------
       Total interest income .............................................            709,985            919,753          2,091,775

INTEREST EXPENSE
   Deposits and borrowings ...............................................            257,878            370,709            768,129
                                                                                  -----------         ----------        -----------
       Net interest income ...............................................            452,107            549,044          1,323,646

PROVISION FOR POSSIBLE LOAN LOSSES .......................................            225,000             30,000            480,000
                                                                                  -----------         ----------        -----------
       Net interest income after provision for loan losses ...............            227,107            519,044            843,646
                                                                                  -----------         ----------        -----------

NONINTEREST INCOME
   Service fees on deposit accounts ......................................             24,025             22,981             65,283
   Fees on loans sold ....................................................             15,274             11,719             42,163
   Other .................................................................             12,816             21,104             58,530
                                                                                  -----------         ----------        -----------
       Total non interest income .........................................             52,115             55,804            165,976
                                                                                  -----------         ----------        -----------

NONINTEREST EXPENSES
   Salaries and employee benefits ........................................            324,211            336,725            913,089
   Occupancy .............................................................             16,103             14,669             44,756
   Furniture and equipment ...............................................             35,189             47,864            115,630
   Advertising and public relations ......................................             21,232             24,460             63,315
   Professional fees .....................................................             44,150             35,568             95,433
   Travel and entertainment ..............................................             24,374             30,406             69,821
   Telephone, postage and supplies .......................................             29,719             51,945            104,721
   Other operating .......................................................             12,316             11,716             33,030
                                                                                  -----------         ----------        -----------
       Total non interest expenses .......................................            507,294            553,353          1,439,795
                                                                                  -----------         ----------        -----------
       Income (loss) before income taxes .................................           (228,072)            21,495           (430,171)
INCOME TAX  (BENEFIT) ....................................................            (78,472)             7,172           (147,296)
                                                                                  -----------         ----------        -----------
       Net income (loss) .................................................        $  (149,600)        $   14,323        $  (282,875)
                                                                                  ===========         ==========        ===========

NET INCOME (LOSS)  PER COMMON SHARE ......................................        $      (.14)        $      .01        $      (.27)
                                                                                  ===========         ==========        ===========

WEIGHTED AVERAGE SHARES OUTSTANDING ......................................          1,047,987          1,047,987          1,047,987
                                                                                  ===========         ==========        ===========
</TABLE>



       See notes to consolidated financial statements.



                                       3
<PAGE>


                        SOUTHCOAST FINANCIAL CORPORATION
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                                                                        Accumulated       Total
                                                                                                          other           share-
                                                         Common stock         Paid-in     Retained     comprehensive      holders'
                                                     Shares      Amount       capital      deficit        income          equity
                                                     ------      ------       -------      -------        ------          ------


<S>                                                          <C>           <C>            <C>          <C>             <C>
BALANCE, JANUARY 1, 1998 .....................           -   $         -   $         -    $       -    $          -    $          -

   Net loss ..................................           -             -             -     (306,802)              -        (306,802)

   Other comprehensive income, net
     of tax:
     Unrealized holding gains on
       securities available for sale .........           -             -             -            -               -               -
     Reclassification adjustments for
       gains included in net loss ............           -             -             -            -               -               -
   Comprehensive income (loss) ...............           -             -             -            -               -               -

   Sale of stock (net of offering
     costs of $912,503) ......................     952,713     4,763,565     5,756,488            -               -      10,520,053
                                                 ---------   -----------   -----------    ---------    ------------    ------------

BALANCE,  SEPTEMBER 30,1998 ..................     952,713     4,763,565     5,756,488     (306,802)              -      10,213,251
                                                 =========   ===========   ===========    =========    ============    ============

BALANCE, JANUARY 1, 1999 .....................     952,713     4,763,565     5,756,488     (451,147)          5,678      10,074,584

   Net loss ..................................           -             -             -     (282,875)              -        (282,875)

   Other comprehensive income, net
     of tax:
     Unrealized holding losses on
       securities available for sale .........           -             -             -            -         (89,134)        (89,134)
     Reclassification adjustments for
       gains included in net loss ............           -             -             -            -               -               -
                                                                                                                       ------------

   Comprehensive income (loss) ...............           -             -             -            -               -        (372,009)
   11 for ten stock split ....................      95,274       476,370      (476,370)           -               -               -
   Par value conversion ......................           -     5,280,118    (5,280,118)           -               -               -
                                                 ---------   -----------   -----------    ---------    ------------    ------------

BALANCE, September 30, 1999 ..................   1,047,987   $10,520,053   $         -    $(734,022)   $    (83,456)   $  9,702,575
                                                 =========   ===========   ===========    =========    ============    ============
</TABLE>








           See notes to consolidated financial statements.






                                       4
<PAGE>



                        SOUTHCOAST FINANCIAL CORPORATION
                      CONSOLIDATED STATEMENT OF CASH FLOWS
                     For the nine months ended September 30
                                   (Unaudited)


<TABLE>
<CAPTION>
OPERATING ACTIVITIES                                                                               1999                      1998
                                                                                                   ----                      ----

<S>                                                                                            <C>                     <C>
     Net loss ......................................................................           $   (282,875)           $   (306,802)
     Adjustments to reconcile net loss to net cash provided
     by operating activities
         Deferred income ...........................................................               (184,611)                      -
         Provision for possible loan losses ........................................                480,000                 100,000
         Depreciation and amortization .............................................                 61,687                  13,853
         Increase in other assets ..................................................               (211,165)               (234,202)
         Increase in other liabilities .............................................                173,510                  84,384
                                                                                               ------------            ------------
                  Net cash provided by operating activities ........................                 36,546                (342,767)
                                                                                               ------------            ------------

INVESTING ACTIVITIES
     Decrease (increase) in federal funds sold .....................................              2,810,000              (9,250,000)
     Purchase of investment securities available for sale ..........................             (2,057,314)             (1,000,078)
     Net increase in loans .........................................................            (25,426,182)             (2,774,195)
     Purchase of property and equipment ............................................             (2,637,748)             (1,047,283)
                                                                                               ------------            ------------
                  Net cash used for investing activities ...........................            (27,311,244)            (14,071,556)
                                                                                               ------------            ------------

FINANCING ACTIVITIES
     Increase in Federal Home Loan Bank borrowing ..................................              3,950,000                       -
     Sale of stock, net ............................................................                      -              10,520,053
     Net increase in deposits ......................................................             23,673,610               4,108,395
                                                                                               ------------            ------------
                  Net cash provided by financing activities ........................             27,623,610              14,628,448
                                                                                               ------------            ------------
                  Increase in cash and due from banks ..............................                348,912                 214,125

CASH AND DUE FROM BANKS, BEGINNING OF PERIOD .......................................              1,211,451                       -
                                                                                               ------------            ------------

CASH AND DUE FROM BANKS, END OF PERIOD .............................................           $  1,560,363            $    214,125
                                                                                               ============            ============
</TABLE>















     See notes to consolidated financial statements.




                                       5
<PAGE>



                        SOUTHCOAST FINANCIAL CORPORATION
              NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS


NOTE 1 - BASIS OF PRESENTATION

           The accompanying unaudited financial statements have been prepared in
accordance with generally accepted  accounting  principles for interim financial
information  and  with  the  instructions  to Form  10-QSB  and  item 310 (b) of
Regulation S-B of the Securities and Exchange  Commission.  Accordingly  they do
not  include all  information  and  footnotes  required  by  generally  accepted
accounting principles for complete financial statements. However, in the opinion
of management,  all  adjustments  (consisting of normal  recurring  adjustments)
considered  necessary for a fair  presentation  have been included.  Because the
business  operations  did not  commence  until the  third  quarter  of 1998,  no
statements of income for 1998 are presented.

NOTE 2 - ORGANIZATION

           Southcoast Financial  Corporation (the "Company") is a South Carolina
corporation  organized  in 1999 for the  purpose of being a holding  company for
Southcoast Community Bank (the "Bank"). On April 29, 1999, pursuant to a Plan of
Exchange approved by the shareholders,  all of the outstanding shares of capital
stock of the Bank were exchanged for shares of common stock of the Company.  The
Company  presently engages in no business other than that of owning the Bank and
has no employees.

NOTE 3 - NET INCOME PER SHARE

           Net income per share is computed on the basis of the weighted average
number of common shares  outstanding  in accordance  with Statement of Financial
Accounting  Standards No. 128,  "Earnings per Share".  The Company does not have
any instruments which are dilutive;  therefore,  only basic net income per share
of common stock is presented.

           In March, 1999, the Company declared an eleven-for-ten stock split of
the Company's  common stock. The weighted average number of shares and all other
share data have been  restated  for all periods  presented to reflect this stock
split.




                                       6
<PAGE>

ITEM 2.

MANAGEMENT'S  DISCUSSION  AND  ANALYSIS OF  FINANCIAL  CONDITION  AND RESULTS OF
OPERATIONS

           The following  discussion and analysis  should be read in conjunction
with the financial  statements and related notes  appearing in the Form 10-SB of
Southcoast  Financial  Corporation.  It will  concentrate  on the nine months of
operations ending September 30,1999.  The Bank commenced  operations on July 20,
1998 and was in  business  for a portion  of the third  quarter  of 1998.  Where
appropriate,  comparisons to second  quarter of 1999 have been made.  Results of
operations  for the  period  ending  September  30,  1999  are  not  necessarily
indicative  of the results to be attained for any other  period.  The  following
information  may  contain  forward-looking  statements  that  involve  risks and
uncertainties.  The  Company's  actual  results may differ  materially  from the
results discussed in the forward-looking statements.

NET INTEREST INCOME

   Net interest income is the difference  between the interest earned on earning
   assets and the interest paid for funds acquired to support those assets.  Net
   interest  income,  the  principal  source  of  the  Company's  earnings,  was
   $1,323,646 for the nine months ended September 30, 1999. For the three months
   ended  September  30,  1999 net  interest  income was  $549,044  compared  to
   $452,107 for the three months ended June 30, 1999.

   Changes  that affect net  interest  income are  changes in the  average  rate
   earned on  interest  earning  assets,  changes  in the  average  rate paid on
   interest bearing  liabilities,  and changes in the volume of interest earning
   assets and interest bearing liabilities.

   Average earning assets for the quarter ending September 30, 1999 increased to
   $38.5 million or 25.8 percent from the $30.6 million reported for the quarter
   ending June 30, 1999. The increase was mainly attributable to the increase in
   loans supported by a $8.2 million  increase in interest  bearing  liabilities
   which resulted from favorable  economic  conditions in the Charleston,  South
   Carolina market and the Company's marketing efforts.

   The following table  represents  changes in the Company's net interest income
   which are  primarily a result of changes in volume and rates of its  interest
   earnings  assets  and  interest  bearing  liabilities.  The  increase  in net
   interest  income is due to increased  volume of earnings  assets and interest
   bearing  liabilities  coupled with a 10 basis point increase in the Company's
   net interest  spread.  The net interest spread is the difference  between the
   yield  on  earning  assets  minus  the  average  rate  of  interest   bearing
   liabilities.


                                        7
<PAGE>


<TABLE>
<CAPTION>
                                    Three months ended                  Three months ended                   Nine months ended
                                      June 30, 1999                     September 30, 1999                  September 30, 1999
                               -----------------------------    ---------------------------------    -------------------------------
ASSETS                         Average     Income/    Yield/    Average        Income/     Yield/    Average      Income/     Yield/
                               balance     expense     rate     balance        expense      rate     balance      expense      rate
                               -------     -------     ----     -------        -------      ----     -------      -------      ----

<S>                         <C>           <C>         <C>     <C>           <C>            <C>     <C>           <C>          <C>
Federal funds sold ........ $ 2,910,713   $ 35,715     4.91%  $ 1,839,262   $    22,855     4.97%  $ 2,973,461   $  107,318    4.81%
Investments ...............   4,632,690     65,335     5.64     4,646,234        80,146     6.90     4,215,322      192,624    6.09
                            -----------   --------            -----------   -----------            -----------   ----------
Total investments and
   federal funds sold .....   7,543,403    101,050     5.36     6,485,496       103,001     6.35     7,188,783      299,942    5.56
Loans .....................  23,014,557    608,935    10.58    31,968,913       816,752    10.22    22,949,769    1,791,833   10.41
                            -----------   --------            -----------   -----------            -----------   ----------
Total earning assets ......  30,557,960    709,985     9.29    38,454,409       919,753     9.57    30,138,552    2,091,775    9.25
Other assets ..............   3,370,376                         4,533,611                            3,327,468
                            -----------                       -----------                          -----------
Total assets .............. $33,928,336                       $42,988,020                          $33,466,020
                            ===========                       ===========                          ===========
Interest bearing deposits   $19,313,760   $233,794     4.84   $24,962,825   $   313,747     5.03   $18,450,878   $  680,869    4.92
FHLB advances .............   1,873,656     24,084     5.14     4,388,849        56,962     5.19     2,233,810       87,260    5.21
                            -----------   --------            -----------   -----------            -----------   ----------
Total interest bearing
   liabilities ............  21,187,416    257,878     4.87    29,351,674       370,709     5.05    20,684,688      768,129    4.95
Non-interest bearing
   liabilities ............   2,839,435                         3,846,897                            2,863,374
                            -----------   --------            -----------   -----------            -----------   ----------
Total liabilities .........  24,026,851    257,878     4.29    33,198,571       370,709     4.47    23,548,062      768,129    4.35
Equity ....................   9,901,485                         9,789,449                            9,917,958
                            -----------                       -----------                          -----------
Total liabilities and
   Equity ................. $33,928,336                       $42,988,020                          $33,466,020
                            ===========                       ===========                          ===========
Net interest income/
   margin .................               $452,107     5.92                 $   549,044     5.71                 $1,323,646    5.86
                                          ========                          ===========                          ==========
Net interest spread .......                            4.42                                 4.52                               4.30

</TABLE>

As reflected  above,  for the three months ended  September 30, 1999 the average
yield on earning assets amounts amounted to 9.57 percent, while the average cost
of  interest-bearing  liabilities  was 5.05 percent.  For the three months ended
June 30,  1999 the  average  yield on earning  assets was 9.29  percent  and the
average cost of interest-bearing  liabilities was 4.87 percent.  The increase in
the yield on earning assets is  attributable  to the increased  volume of loans,
which gives the Company a greater return than the other types of earning assets.
The net  interest  margin is  computed  by  subtracting  interest  expense  from
interest  income and dividing the resulting  figure by average  interest-earning
assets.  The net interest  margin for the three months ended  September 30, 1999
was 5.71  percent  compared to 5.92  percent for the three months ended June 30,
1999. The decrease in the net-interest margin is attributable to the increase in
interest bearing  liabilities which resulted in an increase in the cost of total
liabilities to support  earning assets.  The cost of total  liabilities was 4.47
percent for the three months ended  September  30, 1999 compared to 4.29 percent
for the three months ended June 30,  1999.  For the nine months ended  September
30, 1999, the net interest margin was 5.86 percent.

The following  table  represents  changes in the  Company's net interest  income
which  are  primarily  a  result  of  changes  in the  volume  and  rates of its
interest-earning assets and interest-bearing liabilities.

                                       8
<PAGE>

                   Analysis of Changes in Net Interest Income
<TABLE>
<CAPTION>
                                                                                   For the three months ended September 30, 1999
                                                                                      versus three months ended June 30, 1999
                                                                                      ---------------------------------------
                                                                                Volume                  Rate              Net change
                                                                                ------                  ----              ----------
<S>                                                                            <C>                   <C>                  <C>
Federal fund sold .................................................            $ (13,147)            $    287             $ (12,860)
Investments .......................................................                  191               14,620                14,811
                                                                               ---------             --------             ---------
Total investments and federal funds sold ..........................              (12,956)              14,907                 1,951
Total loans .......................................................              236,921              (29,104)              207,817
                                                                               ---------             --------             ---------
Total earning assets ..............................................              223,965              (14,197)              209,768
Total interest-bearing liabilities ................................               99,369               13,462               112,831
                                                                               ---------             --------             ---------
Net interest income ...............................................            $ 124,596             $(27,659)            $  96,937
                                                                               =========             ========             =========
</TABLE>

RESULTS OF OPERATIONS

   The  Company's  net loss for the nine  months  ended  September  30, 1999 was
   $282,875 or $.27 per share. For the three months ended September 30, 1999 the
   net income was  $14,323 or $.01 per share  compared to a net loss of $149,600
   or $.14 per share for the three months ended June 30, 1999. The amount of the
   Company's  provision  for loan losses in the third  quarter was $30,000 which
   was substantially less than the amount of the provision in previous quarters.
   Since  opening  the  bank in July  1998,  management  has  sought  to have an
   allowance  for loan losses that was  adequate to cover the level of loss that
   management  believed to be inherent in the  portfolio  as a whole taking into
   account the  relative  size of the  allowance  and the size of the  Company's
   largest loans.  In the third quarter of 1999,  management  concluded that the
   allowance  for loan losses was large  enough to allow for the risk of loss of
   one or two of the  Company's  larger loans and still reflect the risk of loss
   in the loan portfolio as a whole. Consequently,  the Company made a provision
   for loan  losses  for  third  quarter  of 1999  that  was less  than in prior
   quarters.  Had it been kept at the level of prior quarters, the Company would
   have reported a net operating loss for the third quarter of 1999.

   Non-interest  income  for the  nine  months  ended  September  30,  1999  was
   $165,976.  For the three  months  ended  September  30, 1999 the  noninterest
   income was $55,804  compared to $52,115 for the three  months  ended June 30,
   1999.

   Non-interest  expenses  for the nine  months  ended  September  30, 1999 were
   $1,439,795,  of this  total  $1,074,475  represents  salaries  and  benefits,
   occupancy  cost and furniture and  equipment  expenses.  For the three months
   ended September 30, 1999, total  non-interest  expenses  amounted to $553,353
   compared to $507,294 for the three  months  ended June 30,  1999.  The slight
   increase in expenses in the third  quarter is  primarily  related to expenses
   associated with the opening of the Savannah Highway branch.

                                       9
<PAGE>

LIQUIDITY

   Liquidity  is the  ability to meet  current  and future  obligations  through
   liquidation or maturity of existing assets or the acquisition of liabilities.
   The Company manages both assets and liabilities to achieve appropriate levels
   of liquidity.  Cash and  short-term  investments  are the  Company's  primary
   sources of asset liquidity.  These funds provide a cushion against short-term
   fluctuations  in cash flow from  both  deposits  and  loans.  The  investment
   portfolio is the Company's  principal  source of secondary  asset  liquidity.
   However,  the  availability  of this source of funds is  influenced by market
   conditions.  Individual  and  commercial  deposits  and  borrowings  from the
   Federal Home Loan Bank are the Company's  primary  source of funds for credit
   activities. The Company also has a $3 million line of credit with the Bankers
   Bank of Atlanta. Management believes that the Company's liquidity sources are
   adequate to meet its operating needs.

LOANS

   Commercial  financial and agricultural  loans made up 16 percent of the total
   loan portfolio as of September 30, 1999, totaling $5.8 million. Loans secured
   by real estate for construction and land development  totaled $3.4 million or
   9 percent of the total loan  portfolio  while all other loans secured by real
   estate  totaled $25.9 million or 71 percent of the total loan portfolio as of
   September30,  1999. Installment loans and other consumer loans to individuals
   comprised  $1.5  million  or 4  percent  of the  total  loan  portfolio.  The
   allowance  for loan losses was 2.20 percent of loans as of September 30, 1999
   compared to 2.92 percent as of December 31, 1998.  In  management's  opinion,
   the allowance for loan losses is adequate. At September 30, 1999, the Company
   had no loans that were 90 days or more past due or non-accruing.

CAPITAL RESOURCES

   The capital base for the Company decreased by $372,009 for the nine months of
   1999, due to operating  losses and  unrealized  losses carried on securities.
   The Company's equity to asset ratio was 20.2 percent as of September 30, 1999
   compared to 48.7 percent as of December 31, 1998.

   The  Federal  Deposit   Insurance   Corporation  has  issued  guidelines  for
   risk-based  capital  requirements.  As of  September  30,  1999,  the Company
   exceeds the capital requirement levels that are to be maintained.

                                 Capital Ratios
<TABLE>
<CAPTION>
                                                                                      Well Capitalized     Adequately Capitalized
                                                                   Actual               Requirement              Requirement
                                                                   ------               -----------              -----------
       (Dollars in thousands)                            Amount         Ratio      Amount         Ratio      Amount         Ratio
                                                         ------         -----      ------         -----      ------         -----
<S>                                                     <C>             <C>        <C>            <C>        <C>            <C>
Total capital to risk weighted assets ..........        $10,099         34.43%     $2,933         10.00%     $2,347         8.00%
Tier 1 capital to risk weighted assets .........          9,727         33.16       1,706          6.00       1,173         4.00
Tier 1 capital to average assets ...............          9,727         22.64       2,148          5.00       1,718         4.00
</TABLE>


                                       10
<PAGE>

YEAR 2000 READINESS DISCLOSURE

   Many  computer-based  information systems in use today exclude the century as
   part of the date definition,  which could cause inaccurate calculations after
   December 31, 1999.  The "Year 2000  Problem" had been  recognized at the time
   company  management  was deciding  which vendor  packages to use in its daily
   operations.  Management obtained representations from all of its vendors that
   the  hardware/software  was  Year  2000  compliant.  However,  despite  these
   representations,  management  has completed  extensive  testing of all of its
   computer hardware and software which has confirmed Year 2000 compliance.  The
   estimated  total  cost of the  testing  was  $20,000.  The  Company  does not
   anticipate  incurring any additional  expenses to become Year 2000 compliant.
   Year 2000 problems encountered by customers and vendors of goods and services
   other than computer and data processing  systems could  adversely  affect the
   Company.  Management has developed  contingency  plans to deal with the types
   and extent of possible problems it can foresee. Contingency plans include the
   identification of alternate sources of computer hardware and software as well
   as plans for  carrying on  essential  business  functions  without the use of
   computers. Based on the information it has obtained and reviewed,  management
   of the Company does not believe that the most  reasonably  likely  worst-case
   scenario  the  Company  would  encounter  would be  materially  worse  than a
   substantial  inconvenience.  Nevertheless,  Year 2000  problems  could have a
   material adverse effect on the Company,  the dollar amount of which cannot be
   accurately  quantified  at  this  time  because  of  inherent  variables  and
   uncertainties.


IMPACT OF INFLATION

   Unlike most  industrial  companies,  the assets and  liabilities of financial
   institutions such as the Company are primarily monetary in nature. Therefore,
   interest rates have a more  significant  impact on the Company's  performance
   than do the effects of changes in the general rate of  inflation  and changes
   in prices.  In addition,  interest rates do not necessarily  move in the same
   magnitude  as the  prices of goods and  services.  As  discussed  previously,
   management  seeks to manage  the  relationships  between  interest  sensitive
   assets and  liabilities in order to protect  against wide rate  fluctuations,
   including those resulting from inflation.

 RECENTLY ISSUED ACCOUNTING STANDARDS

   In June 1998, the FASB issued SFAS 133, "Accounting for Derivative Instrument
   and Hedging Activities". All derivatives are to be measured at fair value and
   recognized in the balance sheets as assets or liabilities.  This  statement's
   effective  date was  delayed  by the  issuance  of SFAS 137  (Accounting  for
   Derivative  Instruments  and Hedging  Activities - Deferral of the  Effective
   Date of FASB  Statement No. 133 - an amendment of the FASB Statement No. 133)
   and is effective for fiscal years and quarters beginning after June 15, 2000.
   Because  the  Company  does not use  derivative  transactions  at this  time,
   management does not expect this standard to have a significant  effect on the
   Company.



                                       11
<PAGE>

   In October 1998, the FASB issued SFAS 134,  "Accounting  for  Mortgage-Backed
   Securities  Retained after the Securitization of Mortgage Loans Held for Sale
   by a Mortgage Banking Enterprise.  The new statement  establishes  accounting
   and  reporting   standards  for  certain   activities  of  mortgage   banking
   enterprises. The statement is effective for the first quarter beginning after
   December  15,  1998.  The  statement  will have no  effect  on the  financial
   statements of the Company.

   In February  1999,  the FASB issued SFAS 135, " Rescission of FASB  Statement
   No. 75 and Technical  Corrections".  The FASB provides technical  corrections
   for  previously  issued  statements  and  rescinds  SFAS 75,  which  provides
   guidance related to pension of state and local  governmental  units. SFAS 135
   is  effective  for the fiscal years  ending  after  February  15, 1999.  This
   statement will have no effect on the financial statements of the Company.

   In June 1999,  the FASB  issued SFAS 136,"  Transfers  of Assets to a Not-for
   -Profit  Organization or Charitable Trust that Raises or Holds  Contributions
   for Others" is effective  for fiscal  periods  beginning  after  December 15,
   1999.  This  statement  establishes  standards for  transactions  in which an
   entity  makes a  contribution  by  transferring  assets to a not-for  -profit
   organization or a charitable  trust and then requires these  contributions to
   be used in  specified  manner.  This  statement  will  have no  effect on the
   financial statements of the Company.















                                       12
<PAGE>




                           PART II - OTHER INFORMATION




ITEM 6.  Exhibits and Reports on Form 8-K.

a)       Exhibits

     Exhibit No.
     From Item 601 of
     Regulation S-B                             Description

     ----------------------------               ------------------------------

                3.1*                            Articles of Incorporation
                3.2*                            Bylaws
                10.1                            Stock Option Plan
                27                              Financial Data Schedule

b)       Reports on form 8-K.      None.

-------------------
*Incorporated by reference to Form 10-SB filed April 30, 1999.






                                       13
<PAGE>



SIGNATURES


Under the  requirements of the Securities  Exchange Act of 1934, the Company has
duly caused this report to be signed on its behalf by the undersigned  thereunto
duly authorized.




       Southcoast Financial Corporation
       --------------------------------
              Name of Company


     s/L. Wayne Pearson
By:---------------------------------------       Date: November 15, 1999
     President and Chief Executive Officer

     s/Robert M. Scott
By:---------------------------------------       Date: November 15, 1999
     Executive Vice President and
      Chief Financial Officer